Apple's "Touch" Ecosystem Continues to Expand

By Larry Dignan

Updated on: December 8, 2008 / 8:07 AM
/ MoneyWatch

Apple may be offering a $99 iPhone at Wal-Mart. More than 300 million applications have been downloaded from Apple's App Store. And the iPod touch is out of stock in at key retailers. Add it up and signs abound that Apple's has created a virtuous cycle for its touch platform and the payoff may be coming macroeconomic concerns be damned.

Apple's master plan for its touch ecosystem isn't news. In fact, analysts like UBS' Ben Reitzes had been connecting the dots on what iPhone's touch platform would mean for Apple's entire product line back in March 2007.

In a research note on Monday, Deutsche Bank analyst Chris Whitmore does a nice job of tying up the loose ends on Apple's touch ecosystem. He notes:

Apple's repositioning of the iPod touch as a gaming device appears to be working. Rapidly expanding availability of 3rd party applications on iTunes and lower hardware prices (Touch & iPhone) is driving strong demand for the Touch platform and breathing new life into the iPod as an all encompassing portable media/entertainment device. Our checks following Cyber Monday show stock outs of the iTouch at Amazon, Target and Walmart (particularly the 16GB version) as well as nanos and shuffles. We believe gaming (plus music & video) is emerging as the killer app for the Touch platform due to its unique position in the market (touch functionality, accelerometer/tilt user interface) and a growing availability of inexpensive/free software. As highlighted in Fig 1, we estimate the Touch platform (iTouch & iPhone) will exceed 22M unit shipments in CY08 and represent 30% market share of portable gaming devices. Meanwhile, App store content is growing at a rapid rate- from 500 apps in June '08 when the App store was opened to ~10K apps and 300M downloads currently. We believe a virtuous circle has developed where a rapidly growing installed base of Touch devices fuels additional app development, which in turn, drives incremental hardware demand. Macro weakness notwithstanding, we believe the Touch is emerging as a high demand item this holiday season. Like iTunes and the iPod ~5 years ago, the app store and Touch user interface is also emerging as a source of sustainable competitive advantage, customer loyalty and product leadership.

If Whitmore is correctâ€"I see no reason to doubt his takeâ€"then the ecosystem that Reitzes talked about more than a year ago is hitting the payoff stage.

The business technology implications for this emerging touch ecosystem are unclear. Today the Apple touch-App Store cycle is being driven by games. Fun and games are why I'll take an iPod touch over an iPhone any day, but I may find a way to be productive too.

Here's the breakdown via Whitmore's charts and Apple's data:

And.

Meanwhile, business applications, a category that is loosely defined, are small potatoes relative to games and entertainment. However, if you couple the business, finance and productivity applications you have one of the more popular categories on Apple's App Store (click to enlarge chart).

Add it up and it's not a huge stretch to see some element of the Apple touch platform invading your corporation. It's just a matter of time combined with Apple's willingness to put touch navigation into its broader product lineup.

Larry Dignan is Editor in Chief of ZDNet and Editorial Director of ZDNet sister site TechRepublic. See his full profile and disclosure of his industry affiliations. This post first appeared in ZDNet's Between the Lines blog.